As the nation awaits the release of the inflation figures for the month of March tomorrow, Thursday, April 15, by the nation’s Bureau of Statistics, there are indications that economy may witness a 0.47 percent jump in headline inflation to 17.8 percent, some analysts have predicted.
This is even as consumers are reeling under the excruciating effect of higher prices of goods and services with the attendant impoverishment.
According to analysts at the Financial Derivatives Company (FDC) in their Economic Monthly Publication for April 13, should this happens, it will be the 19th consecutive monthly increase and a 48-month high.
FDC analysis reveals that both the food and core sub-indices are likely to increase in the
month of March. Food inflation is projected to rise to 22.3% while core sub-index could
climb to 12.6%, a development that has continued to make life and living unbearable for average consumers.
Consequently, the sharp increase in headline inflation is likely to force the CBN to reconsider resuming its
tightening cycle.
This is because, according to the analysts, “Typically, monetary conditions and monetary policy move in opposite directions to keep the price level under control. When monetary conditions are loose, the CBN adopts a tight monetary policy stance to ensure price stability and vice versa.With inflation spiraling and currently double the upper band of the CBN’s inflation target (9%), a likely increase in interest rates is not only imminent but almost inevitable.”
Exchange rate pressures, government’s growing propensity for borrowings, among others, have proven to be major inflation drivers and all indications show that the end is not in sight.
“The FGN’s borrowings (ways and means advances) have also increased money supply, exacerbating inflationary pressures, ” FDC analysts say.
This is even as the Federal government has denied printing N60 billion to augment the March allocation as alleged by Godwin Obaseki, Edo state governor
But manufacturers are currently experiencing difficulties in securing imported raw materials as forex rationing continues to take its toll. This pushed up import costs and re-duced output, evidenced by the 3.02% drop in FBN PMI to 51.4pts in March, say the analysts. The decline in imported raw materials is forcing manufacturers to look inwards for local substitutes, reducing the supply of commodities to retail markets. Besides, aggregate domestic output has been constrained by disruptions, low productivity (-0.5%) and logistics constraints.
But, the Federal government, through Zainab Ahmed, Minister of Finance, Budget and National Planning has described the allegation by Obaseki as untrue and sad.
Zainab Ahmed, told State House correspondents on Wednesday in Abuja that, : “The issue that was raised by the Edo State Governor for me is very, very sad. Because it is not a fact.What we distribute at FAAC is revenue that is generated and in fact distribution revenue is public information. We publish revenue generated by FIRS, the customs and the NNPC and we distribute at FAAC.”
In what appears as postponing the evil day, the Federal government last weekend decided to delay the inevitable with respect to the deregulation of refined PMS for 6 months, as it continues to negotiate with the unions over the resultant impact on the workers.
The NNPC, which is the sole importer of refined PMS into the country, spends about N120bn monthly on fuel subsidies, (N720bn for 6 months). This is because at current global oil prices, and factoring in the exchange rate adjustment, the market price of fuel is estimated at N212- N234/ltr compared to the retail price of N162-N165/ltr.
The government has a projected deficit financing need of N5.5trn in 2021, which is projected to increase, as there was no provision for fuel subsidies in the 2021 budget.
According to the analysts, “Kicking the can down the road only delays the inevitable. It will be better for the government to bite the bullet now so the adjustment process can kick in
sooner than later.”
But, some questions on the lips of stakeholders are, when will the Federal Government exercise the desired political will to executive policies that would be beneficial to Nigerians, when will the obvious leakages in governance and high cost of governance be blocked and wastages reduced and when will the much mouthed diversification hypes from oil begin to yield the
desired outcome?
It is on records that Oil and gas exports’ share of total ex-
port earnings have increased in the last decade, from approximately 70% in 2010 to almost 90% in 2020. On the other hand, the sector’s contribution to economic activities has been hovering
around 8-9% of GDP while the non-oil sector accounts for the bulk.
The question then will be, why has the government been unable to convert the over 90% contribution of the non-oil sector to GDP output, to gen-
erating significantly more in exports and revenue? There have been import substitution strategies put in place to support local industries, forex restrictions to reduce competition from imported
goods and several intervention funds disbursed by the government and the CBN. However, all these efforts appear to be rhetoric with no results, as the non-oil sector only accounts for a paltry 10% of export earnings.
There is a direct correlation between oil earnings and the external position of the country and the exchange rate. The higher the oil proceeds, the higher the increase in the external reserves
accretion and the CBN’s ability to support the currency and ensure exchange rate stability. With oil prices projected to slide due to OPEC+ relaxation of output cuts amid still low production levels, Nigeria’s oil proceeds may dwindle and this will affect the CBN’s ability to support the naira.
